1. Central Excise Duty (Cenvat): Central excise duty is a tax which is charged on excisable goodsthat are manufactured in India and are meant for domestic consumption. On all goods falling underChapter 61, 62 and 63 bearing a brand name (primarily Branded Ready Made Garments), havinga Retail Sales Price of Rs. 1000 and above was 2% (without Cenvat) and 12.5% (with Cenvat),with the tariff value of 60% of Retail Sales Price to account for value-addition after manufacture.Optional Central Excise duty route was available since 2004 in case of cotton, MMF and Spunyarn at the yarn, fabric and garment stage, wherein duty was payable if the manufacturer opted toavail CENVAT, else the trader/manufacturer had the option of clearing goods without payment ofCentral Excise duty though no Cenvat credit of inputs, input services and capital goods wasallowed. In case of cotton, there was zero duty at the fibre stage and in case of MMF, CentralExcise duty of 12% was levied at the fibre stage.2. Service Tax: Service Tax is a tax that the service providers in India except those in the state ofJammu and Kashmir are required to pay a under the provisions of the Finance Act of 1994. TheService Tax is levied on the gross or aggregate amount charged by the service provider on thereceiver. Textile sector availed various input services for manufacturing its finished products. Theservice tax so paid on such input services could not be set off since this sector is largely under dutyexemption. Hence such service tax paid on input services became a cost. Service Tax on servicein relation to textile processing was exempted.State Taxes:3. VAT/ Central Sales Tax: State VAT is a form of sales tax levied by the state governments onintra-state sale of goods. VAT is applied by the State governments at each stage of sale, with aparticular apparatus of credit for the input VAT paid. Most of the States in India had exemptedtextiles and fabrics from the levy of VAT / Central Sales tax. Garments including textiles weresubject to lower rate of VAT/ Central Sales tax in most of the States. It was in the range of 5%-6%. For small players, the option of paying taxes at concessional rates was also provided undercomposition scheme in many States.4. Entry tax/Octroi/Local Body Tax: Entry tax is an account based tax levied and collected bystate governments on entry of goods into a local area for consumption, use or sale therein. It wasintroduced by many states to replace Octroi, a local level levy imposed and collected byMunicipalities/ Panchayats, on physical entry of goods. The basic philosophy behind the Entry taxwas to do away with the system of local check-posts outside city limits, resulting in significantdelay in movement of goods. Textiles such as cotton, woolen or silk or artificial silks were liableto entry tax in some States like Karnataka, at the rate of 1% which added to the purchase cost.

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